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Ringgit Declines to four-month low

Ringgit, out of Malaysia, fell to a four-month low based on the speculation of the Federal Reserve increasing the interest rate. In Kuala Lumpur, Ringgit declined 0.3 percent to 3.2280 per dollar. It reached to 3.2442 earlier, the lowest level since May 13.

Bank Negara Malaysia will maintain its policy rate at 3.25 percent on Thursday.

Ho Woei Chen, economist at United Overseas Bank Ltd. in Singapore, said, “Whenever US raises interest rates, it impacts positively to dollars, so Bank Negara will not raise the interest rates immediately by another 25 basis points.”

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A 6 percent goods and service tax is on its way in April, according to Governor Zeti Akhtar Aziz. Risks to inflation and growth will be assessed by Central Bank. In August, consumer prices rose 3.3 percent rise in Malaysia, crossing the median estimate for a 3.2 percent increase. In July, the policy rate was boosted 25 basis points by Central Bank.

The overseas investors are holding 32 percent to government debt in July, so Malaysia will be exposed to emerging market outflows.

Singapore-based economist Rahul Bajoria wrote that Bank Negara will find some to hold off from 25 basis points and consumption tax will create a temporary shock to inflation, so price pressure will fade.

The yield on the Malaysia’s bonds, due in March 2017, has climbed six basis points, which is an increase to 3.59 percent, according to Bloomberg. The yield on the 4.181 percent July 2024 notes fell one basis point to 3.99 percent.

Bloomberg data also shows that one-year rate swaps down by one basis point to 3.78 percent, climbing nine basis points after the policy meeting held at July 10. The contracts reached the highest since September 2008 and it raised 3.80 percent on Aug. 27.

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